DUBLIN, March 5 (Reuters) - State-owned Allied Irish Banks
(AIB) more than halved its full-year loss in 2013 and
returned to an operating profit as margins improved and cost
cuts took hold.

It cost taxpayers more than 20 billion euros to bail out
AIB, the most given to any lender that survived Ireland's debt
crisis. The bank has shut branches and is cutting almost a fifth
of its staff as it tries to return to profit by the end of the
year.

Excluding a provision of 1.9 billion euros for impaired
loans, down a quarter on a year ago, the bank made an operating
profit of 445 million euros in a year its chief executive
described as one of steady progress.

"We remain focused on sustainable growth and returning to
profitability during 2014," said Chief Executive David Duffy.
"Notwithstanding the ongoing challenges facing the bank, we are
more optimistic for the outlook of both the bank and the Irish
economy."

Duffy said he did not think AIB would need further capital
as a result of European stress tests later this year.

While lenders shrunk their balance sheets dramatically as
part of Ireland's EU/IMF bailout, soured loans have made a
return to profitability elusive. AIB made a post-impairment loss
of 1.68 billion euros in 2013 versus 3.72 billion a year
earlier.

Its net interest margin - measuring the profitability of its
lending - rose to 1.37 percent from 1.06 percent at the end of
June. It said the pace of increase in Irish residential
mortgages in arrears decreased in the second half.

The bank's proportion of owner-occupiers in arrears for more
than 90 days stood at 11.1 percent at the end of December, while
almost a quarter of all buy-to-let mortgage holders were behind
on payments for the same timespan.

The bank said its was reviewing options in relation to its
capital structure and would provide further guidance during the
course of 2014 following talks with the government.

The possibilities included a conversion of the bank's
preference shares into equity and the sale of the bank's
contingent capital notes, Duffy told Newstalk radio.